Loren Steffy: Skilling saga lives on, but devil is in the footnotes

CommentaryCrossbar Motel likely to keep him

LOREN STEFFY, Copyright 2010 Houston Chronicle

Published 5:30 am, Friday, June 25, 2010

Perhaps it's only fitting that Jeff Skilling's case would hinge on a footnote.

After all, it was a footnote in Enron's financial filings nine years ago that first hinted that its off-books partnerships were controlled by the company's chief financial officer, the first sign of the financial shenanigans that would destroy the company.

Now, it may be a footnote in the Supreme Court's decision Thursday that keeps him in prison.

The Supremes ruled that Skilling's conviction under the vague "honest services" doctrine is flawed, kicking the whole legal saga back to New Orleans, where the 5th U.S. Circuit Court of Appeals already upheld the convictions.

Skilling's case was one of three before the high court involving "honest services," a vague 1980s law that Congress adopted after the Supremes narrowed mail and wire fraud statutes, which had become a prosecutorial catch-all.

Now, the court has done the same thing with honest services, ruling it applies only to kickbacks and bribery. Skilling was accused of neither.

Rather, he orchestrated a grand scheme that brought down one of the largest corporations in America, drained billions from retirement accounts and put thousands out of work.

For that, he was convicted on 19 counts of conspiracy, securities fraud, insider trading and lying to Enron's auditors. Honest services was one of three arguments underlying the lone conspiracy charge, and it may affect the 12 counts of securities fraud, too.

But it won't affect the single count of insider trading. In other words, no matter what the appeals court decides, Skilling probably isn't checking out of the Crossbar Motel. The best Skilling can hope for is a shorter stay.

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Previously, the appeals court had indicated that if any of the legal arguments underlying the conspiracy charge were invalid, it had to be tossed.

Skilling's attorneys argue that if the conspiracy charge falls, then it taints all the others and Skilling's entire conviction must be overturned. That's a long shot, but it's the only one Skilling has.

"If the circuit finds that the poisoned chalice that the government handed the jury infects all the charges, then he runs the table" on the fraud counts, said Houston appellate lawyer Brian Wice, who's followed the Skilling case from the beginning. "Essentially, he gets a do-over in the Fifth Circuit."

Justice Ruth Bader Ginsburg instructed the appeals court to review its earlier finding about the impact of honest services. Using honest services to convict Skilling may have been a "harmless error," she said. In a crucial footnote, the court said removing honest services from the equation doesn't necessarily undermine the conspiracy count.

In other words, Skilling was convicted under other laws as well, so the outcome may be the same.

It's a frustrating non-resolution to a case for which this city, Enron's former employees and other victims have long sought closure.

Prosecutors essentially pushed the envelope to the case's detriment. Had they simply prosecuted Skilling for wire and securities fraud, it would now be over.

Enron, even here in Houston, seems so long ago, an age before Bernie Madoff and Allen Stanford, before Lehman Brothers and Goldman Sachs, but the outcome of Skilling's case still matters.

The more pensions become 401(k) plans, the more corporate honesty has a direct bearing on the retirement of millions, the more devastating the impact of market-related fraud.

Skilling didn't deny Enron "honest services" as the Supremes have now defined it, but he also didn't provide honest services as most of us would define it. As CEO, he set the agenda at Enron, and he built a company on a foundation of fraud, deceit and manipulated finances. For that, he should be held accountable.

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Skilling may consider Thursday's ruling a victory, but a footnote is working against him once again.